Item 1. Financial Statements
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Amounts in millions, except shares and where noted otherwise)
NOTE 1. NATURE OF BUSINESS
APi Group Corporation (the “Company” or “APG”) is a market-leading business services provider of safety, specialty, and industrial services in over 200 locations, primarily in North America and Europe.
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The accompanying interim unaudited condensed consolidated financial statements (the “Interim Statements”) include the accounts of the Company and of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. These Interim Statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and do not include all of the information and footnotes required by generally accepted accounting principles in the United States of America (“U.S. GAAP”) for complete financial statements. The unaudited condensed consolidated balance sheet as of December 31, 2020 was derived from audited financial statements for the year then ended but does not include all of the information and footnotes required by U.S. GAAP with respect to annual financial statements. In the opinion of management, the Interim Statements include all adjustments (including normal recurring accruals) necessary for a fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the dates and periods presented. It is recommended that these Interim Statements be read in conjunction with the Company’s audited annual consolidated financial statements and accompanying footnotes thereto for the year ended December 31, 2020. Results for interim periods are not necessarily indicative of the results to be expected for a full fiscal year or for any future period.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand and highly liquid investments that have a maturity of three months or less when purchased. Restricted cash reflects collateral against certain bank guarantees. Restricted cash is reported as prepaid expenses and other current assets and other assets in the unaudited condensed consolidated balance sheets.
Investments
The Company holds investments in joint ventures which are accounted for under the equity method of accounting as the Company does not exercise control over the joint ventures. The Company’s share of earnings from the joint ventures was $1 and $5 during the three months ended June 30, 2021 and 2020, respectively, and $2 and $7 during the six months ended June 30, 2021 and 2020, respectively. The earnings are recorded within investment income and other, net in the unaudited condensed consolidated statements of operations. The investment balances were $8 and $9 as of June 30, 2021 and December 31, 2020, respectively, and are recorded within other assets in the unaudited condensed consolidated balance sheets.
NOTE 3. RECENT ACCOUNTING PRONOUNCEMENTS
See the recent accounting pronouncements discussion below for information pertaining to the effects of recently adopted and other recent accounting pronouncements as updated from the discussion in the Company’s 2020 audited consolidated financial statements included in the Company’s Form 10-K filed on March 24, 2021.
Accounting Standards Issued and Adopted:
In January 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (“ASU 2020-01”) to clarify the interaction in accounting for equity securities under Topic 321, investments accounted for under the equity method of accounting in Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. ASU 2020-01 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it did not have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions to the existing guidance for income taxes related to the approach for intra-period tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside
8
basis differences. This ASU also simplifies the accounting for income taxes by clarifying and amending existing guidance related to the effects of enacted changes in tax laws or rates in the effective tax rate computation, the recognition of franchise tax, and the evaluation of a step-up in the tax basis of goodwill, among other clarifications. ASU 2019-12 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2020 with early adoption permitted. The Company adopted this ASU on January 1, 2021 and it had no impact on its consolidated financial statements.
NOTE 4. BUSINESS COMBINATIONS
The Company continually evaluates potential acquisitions that strategically fit within the Company’s existing portfolio or expand the Company’s portfolio into a new and attractive business area. Acquisitions are accounted for as business combinations using the acquisition method of accounting. As such, the Company makes a preliminary allocation of the purchase price to the tangible assets and identifiable intangible assets acquired and liabilities assumed. In the months after closing, as the Company obtains additional information about the acquired assets and liabilities and learns more about the newly acquired business, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Purchase price is allocated to acquired assets and liabilities assumed based upon their estimated fair values as determined based on estimates and assumptions deemed reasonable by the Company. The Company engages third-party valuation specialists to assist with preparation of critical assumptions and calculations of the fair value of acquired intangible assets in connection with significant acquisitions. The excess of the purchase price over the tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Goodwill is attributable to the workforce of the acquired businesses, the complementary strategic fit and resulting synergies these businesses bring to existing operations, and the opportunities in new markets expected to be achieved from the expanded platform.
2021 Acquisitions
During the first six months of 2021, the Company completed several individually immaterial acquisitions for consideration transferred of $13, made up of cash paid at closing of $12 and accrued consideration of $1. The results of operations of these acquisitions are included in the Company’s unaudited condensed consolidated statement of operations from their respective dates of acquisition and were not material.
2020 Acquisitions
During 2020, the Company completed the acquisition of SK FireSafety (“SKG”) within the Safety Services segment and a number of other immaterial acquisitions for consideration transferred of $324, which includes a cash payment made at closing of $319, net of cash acquired, and $5 of accrued consideration that may be paid out in 1-2 years.
SKG is a European market-leading provider of commercial safety services with operations primarily in the Netherlands, Belgium, Sweden, Norway, and the United Kingdom. On October 1, 2020, the Company completed the SKG Acquisition and acquired all of the outstanding stock. Through the acquisition of SKG, APG established a European platform for international organic and acquisition expansion. The other acquisitions were primarily in the Safety Services segment and based in the United States.
The Company has not finalized its accounting for all 2020 acquisitions that occurred during the fourth quarter of 2020. The areas of the purchase price allocation not yet finalized are primarily related to SKG and include the valuation of intangible assets and goodwill and income tax related matters. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required. During Q2 2021, we recorded a measurement period adjustment, primarily related to intangible assets and goodwill, for which the resulting impact to amortization expense was immaterial. Based on preliminary estimates, the total amount of goodwill from the 2020 acquisitions expected to be deductible for tax purposes is $20. See Note 6 – “Goodwill and Intangibles” for the provisional goodwill assigned to each segment.
9
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the dates of acquisition:
Cash paid at closing
|
|
$
|
329
|
|
Deferred consideration
|
|
|
5
|
|
Total consideration
|
|
$
|
334
|
|
|
|
|
|
|
Cash
|
|
$
|
10
|
|
Other current assets
|
|
|
76
|
|
Property and equipment
|
|
|
12
|
|
Customer relationships
|
|
|
82
|
|
Trade names and trademarks
|
|
|
16
|
|
Contractual backlog
|
|
|
1
|
|
Goodwill
|
|
|
215
|
|
Other noncurrent assets
|
|
|
14
|
|
Current liabilities
|
|
|
(54
|
)
|
Noncurrent liabilities
|
|
|
(38
|
)
|
Net assets acquired
|
|
$
|
334
|
|
The Company’s acquisition purchase agreements typically include deferred payment provisions, often to sellers who become employees of the Company. The provisions are made up of three general types of arrangements- contingent compensation and contingent consideration (both of which are contingent on the future performance of the acquired entity) and deferred payments related to indemnities. Contingent compensation arrangements are contingent on the former owner’s future employment with the Company, and the related amounts are recognized over the required employment period, which is typically three to five years. Contingent consideration arrangements are not contingent on employment and are included as part of purchase consideration at the time of the initial acquisition and are paid over a three to five year period. The liability for deferred payments is recognized at the date of acquisition based on the Company’s best estimate and is typically payable over a twelve to twenty-four month period. Deferred payments are not contingent on any future performance or employment obligations and can be offset for working capital true-ups, and representations and warranty items.
The total contingent compensation arrangement liability was $15 and $39 at June 30, 2021 and December 31, 2020, respectively. The maximum payout of these arrangements upon completion of the future performance periods was $46 and $85, inclusive of the $15 and $39, accrued as of June 30, 2021 and December 31, 2020, respectively. The contingent compensation liability is included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets for all periods presented. The Company primarily determines the contingent compensation liability based on forecasted cumulative earnings compared to the cumulative earnings target set forth in the arrangement. For one of the Company’s contingent compensation arrangements, the liability is determined based on the Monte Carlo Simulation method. Compensation expense associated with these arrangements is recognized ratably over the required employment period.
The total liability for deferred payments was $11 and $16 at June 30, 2021 and December 31, 2020, respectively, and are included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets for all periods presented.
NOTE 5. REVENUE
Under ASC 606, Revenue from Contracts with Customers (“ASC 606”), revenue is recognized when or as control of promised goods and services is transferred to customers, and the amount of revenue recognized reflects the consideration to which an entity expects to be entitled in exchange for the goods and services transferred. Revenue is primarily recognized by the Company over time utilizing the cost-to-cost measure of progress, consistent with the Company’s previous revenue recognition practices. Revenue recognized at a point in time relates primarily to distribution contracts and was not material for the three and six months ended June 30, 2021 and 2020, respectively.
10
Contracts with Customers
The Company derives revenue primarily from Safety Services, Specialty Services and Industrial Services contracts with a duration of less than one week to three years (with the majority of contracts with durations of less than six months) which are subject to multiple pricing options, including fixed price, unit price, time and material, or cost plus a markup. The Company also enters into fixed price service contracts related to monitoring, maintenance and inspection of safety systems. The Company may utilize subcontractors in the fulfillment of its performance obligations. When doing so, the Company is considered the principal in these transactions and revenue is recognized on a gross basis.
Revenue for fixed price agreements is generally recognized over time using the cost-to-cost method of accounting, which measures progress based on the cost incurred relative to total expected cost in satisfying the performance obligation. The cost-to-cost method is used as it best depicts the continuous transfer of control of goods or services to the customer. Costs incurred include direct materials, labor and subcontract costs, and indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. These contract costs are included in the results of operations under cost of revenues. Labor costs are considered to be incurred as the work is performed. Subcontractor labor is recognized as the work is performed.
Revenue from time and material contracts is recognized as the services are provided and is equal to the sum of the contract costs incurred plus an agreed upon markup. Revenue earned from distribution contracts is recognized upon shipment or performance of the service.
The cost estimation process for recognizing revenue over time under the cost-to-cost method is based on the professional knowledge and experience of the Company’s project managers, engineers and financial professionals. Management reviews estimates of total contract transaction price and total project costs on an ongoing basis. Changes in job performance, job conditions, and management’s assessment of expected variable consideration are factors that influence estimates of the total contract transaction price, total costs to complete those contracts, and the Company’s profit recognition. Changes in these factors could result in cumulative revisions to revenue in the period in which the revisions are determined, which could materially affect the Company’s consolidated results of operations for that period. Provisions for estimated losses on uncompleted contracts are recorded in the period in which such estimated losses are determined.
The Company disaggregates its revenue primarily by segment, service type, and country from which revenue is invoiced, as the nature, timing and uncertainty of cash flows are relatively consistent within each of these categories. Disaggregated revenue information is as follows:
|
|
Three Months Ended June 30, 2021
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
Life Safety
|
|
$
|
403
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
403
|
|
Heating, Ventilation and Air Conditioning ("HVAC")
|
|
|
109
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
109
|
|
Infrastructure/Utility
|
|
|
—
|
|
|
|
201
|
|
|
|
—
|
|
|
|
—
|
|
|
|
201
|
|
Fabrication
|
|
|
—
|
|
|
|
59
|
|
|
|
—
|
|
|
|
—
|
|
|
|
59
|
|
Specialty Contracting
|
|
|
—
|
|
|
|
155
|
|
|
|
—
|
|
|
|
—
|
|
|
|
155
|
|
Transmission
|
|
|
—
|
|
|
|
—
|
|
|
|
51
|
|
|
|
—
|
|
|
|
51
|
|
Civil
|
|
|
—
|
|
|
|
—
|
|
|
|
17
|
|
|
|
—
|
|
|
|
17
|
|
Corporate and Eliminations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(17
|
)
|
|
|
(17
|
)
|
Net revenues
|
|
$
|
512
|
|
|
$
|
415
|
|
|
$
|
68
|
|
|
$
|
(17
|
)
|
|
$
|
978
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
Life Safety
|
|
$
|
298
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
298
|
|
HVAC
|
|
|
73
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
73
|
|
Infrastructure/Utility
|
|
|
—
|
|
|
|
215
|
|
|
|
—
|
|
|
|
—
|
|
|
|
215
|
|
Fabrication
|
|
|
—
|
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33
|
|
Specialty Contracting
|
|
|
—
|
|
|
|
101
|
|
|
|
—
|
|
|
|
—
|
|
|
|
101
|
|
Transmission
|
|
|
—
|
|
|
|
—
|
|
|
|
116
|
|
|
|
—
|
|
|
|
116
|
|
Civil
|
|
|
—
|
|
|
|
—
|
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
Inspection
|
|
|
—
|
|
|
|
—
|
|
|
|
39
|
|
|
|
—
|
|
|
|
39
|
|
Corporate and Eliminations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Net revenues
|
|
$
|
371
|
|
|
$
|
349
|
|
|
$
|
173
|
|
|
$
|
(4
|
)
|
|
$
|
889
|
|
11
|
|
Six Months Ended June 30, 2021
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
Life Safety
|
|
$
|
771
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
771
|
|
HVAC
|
|
|
207
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
207
|
|
Infrastructure/Utility
|
|
|
—
|
|
|
|
341
|
|
|
|
—
|
|
|
|
—
|
|
|
|
341
|
|
Fabrication
|
|
|
—
|
|
|
|
141
|
|
|
|
—
|
|
|
|
—
|
|
|
|
141
|
|
Specialty Contracting
|
|
|
—
|
|
|
|
254
|
|
|
|
—
|
|
|
|
—
|
|
|
|
254
|
|
Transmission
|
|
|
—
|
|
|
|
—
|
|
|
|
73
|
|
|
|
—
|
|
|
|
73
|
|
Civil
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
|
|
20
|
|
Corporate and Eliminations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26
|
)
|
|
|
(26
|
)
|
Net revenues
|
|
$
|
978
|
|
|
$
|
736
|
|
|
$
|
93
|
|
|
$
|
(26
|
)
|
|
$
|
1,781
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
Life Safety
|
|
$
|
641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
641
|
|
HVAC
|
|
|
154
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
154
|
|
Infrastructure/Utility
|
|
|
—
|
|
|
|
385
|
|
|
|
—
|
|
|
|
—
|
|
|
|
385
|
|
Fabrication
|
|
|
—
|
|
|
|
71
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71
|
|
Specialty Contracting
|
|
|
—
|
|
|
|
193
|
|
|
|
—
|
|
|
|
—
|
|
|
|
193
|
|
Transmission
|
|
|
—
|
|
|
|
—
|
|
|
|
209
|
|
|
|
—
|
|
|
|
209
|
|
Civil
|
|
|
—
|
|
|
|
—
|
|
|
|
25
|
|
|
|
—
|
|
|
|
25
|
|
Inspection
|
|
|
—
|
|
|
|
—
|
|
|
|
76
|
|
|
|
—
|
|
|
|
76
|
|
Corporate and Eliminations
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Net revenues
|
|
$
|
795
|
|
|
$
|
649
|
|
|
$
|
310
|
|
|
$
|
(7
|
)
|
|
$
|
1,747
|
|
|
|
Three Months Ended June 30, 2021
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
United States
|
|
$
|
422
|
|
|
$
|
415
|
|
|
$
|
59
|
|
|
$
|
(17
|
)
|
|
$
|
879
|
|
Canada and Europe
|
|
|
90
|
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
99
|
|
Net revenues
|
|
$
|
512
|
|
|
$
|
415
|
|
|
$
|
68
|
|
|
$
|
(17
|
)
|
|
$
|
978
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
United States
|
|
$
|
337
|
|
|
$
|
349
|
|
|
$
|
170
|
|
|
$
|
(4
|
)
|
|
$
|
852
|
|
Canada and Europe
|
|
|
34
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
37
|
|
Net revenues
|
|
$
|
371
|
|
|
$
|
349
|
|
|
$
|
173
|
|
|
$
|
(4
|
)
|
|
$
|
889
|
|
|
|
Six Months Ended June 30, 2021
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
United States
|
|
$
|
805
|
|
|
$
|
736
|
|
|
$
|
80
|
|
|
$
|
(26
|
)
|
|
$
|
1,595
|
|
Canada and Europe
|
|
|
173
|
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
|
|
186
|
|
Net revenues
|
|
$
|
978
|
|
|
$
|
736
|
|
|
$
|
93
|
|
|
$
|
(26
|
)
|
|
$
|
1,781
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
United States
|
|
$
|
713
|
|
|
$
|
649
|
|
|
$
|
301
|
|
|
$
|
(7
|
)
|
|
$
|
1,656
|
|
Canada and Europe
|
|
|
82
|
|
|
|
—
|
|
|
|
9
|
|
|
|
—
|
|
|
|
91
|
|
Net revenues
|
|
$
|
795
|
|
|
$
|
649
|
|
|
$
|
310
|
|
|
$
|
(7
|
)
|
|
$
|
1,747
|
|
The Company’s contracts with its customers generally require significant services to integrate complex activities and equipment into a single deliverable and are, therefore, generally accounted for as a single performance obligation to provide a single contracted service
12
for the duration of the project. For contracts with multiple performance obligations, the transaction price of a contract is allocated to each performance obligation and recognized as revenue when or as the performance obligation is satisfied using the estimated stand-alone selling price of each distinct good or service. The stand-alone selling price is estimated using the expected cost plus a margin approach for each performance obligation. The aggregate amount of transaction price allocated to the performance obligations that are unsatisfied as of June 30, 2021, was $1,251.
When more than one contract is entered into with a customer on or close to the same date, management evaluates whether those contracts should be combined and accounted for as a single contract as well as whether those contracts should be accounted for as one, or more than one, performance obligation. This evaluation requires significant judgment and is based on the facts and circumstances of the various contracts.
Contracts are often modified through change orders to account for changes in the scope and price of the goods or services being provided. Although the Company evaluates each change order to determine whether such modification creates a separate performance obligation, the majority of change orders are for goods or services not distinct within the context of the original contract and, therefore, not treated as separate performance obligations but rather as a modification of the existing contract and performance obligation.
Variable consideration
Transaction prices for customer contracts may include variable consideration which comprises items such as early completion bonuses and liquidated damages provisions. Management estimates variable consideration for a performance obligation utilizing estimation methods believed to best predict the amount of consideration to which the Company will be entitled. Variable consideration is included in the transaction price only to the extent it is probable, in the Company’s judgment, that a significant future reversal in the amount of cumulative revenue recognized under the contract will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
Changes in the estimates of transaction prices are recognized in revenue on a cumulative catch-up basis in the period in which the revisions to the estimates are made. Such changes in estimates may also result in the reversal of previously recognized revenue if the ultimate outcome differs from the Company’s previous estimate. For the three and six months ended June 30, 2021 and 2020, there were no significant reversals of revenue recognized associated with the revision of transaction prices. The Company typically does not incur any returns, refunds or similar obligations after the completion of the performance obligation since any deficiencies are corrected during the course of performance.
Contract Assets and Liabilities
The Company typically invoices customers with payment terms of net due in 30 days. It is also common for contracts in the Company’s industries to specify a general contractor is not required to submit payments to a subcontractor until it has received those funds from the owner or funding source. In most instances, the Company receives payment of invoices between 30 to 90 days of the date of the invoice.
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from the Company’s projects when revenue is recognized under the cost-to-cost measure of progress and exceeds the amounts invoiced to the Company’s customers, as the amounts cannot be billed under the terms of the Company’s contracts. In addition, many of the Company’s time and material arrangements are billed in arrears pursuant to contract terms, resulting in contract assets being recorded as revenue is recognized in advance of billings.
The Company utilizes the practical expedient under ASC 606 and does not adjust for a significant financing component if the time between payment and the transfer of the related good or service is expected to be one year or less. The Company’s revenue arrangements are typically accounted for under such expedient as payments are within one year of performance for the Company’s services. As of June 30, 2021, none of the Company’s contracts contained a significant financing component. Contract liabilities from the Company’s contracts arise when amounts invoiced to the Company’s customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities also include advance payments from the Company’s customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation. Contract assets and liabilities are classified as current in the unaudited condensed consolidated balance sheets as all amounts are expected to be relieved within one year.
13
The opening and closing balances of accounts receivable, net of allowances, contract assets and contract liabilities from contracts with customers as of June 30, 2021 and December 31, 2020 are as follows:
|
|
Accounts
receivable,
net of
allowances
|
|
|
Contract
Assets
|
|
|
Contract
Liabilities
|
|
Balance as of June 30, 2021
|
|
$
|
664
|
|
|
$
|
184
|
|
|
$
|
232
|
|
Balance as of December 31, 2020
|
|
|
639
|
|
|
|
142
|
|
|
|
219
|
|
The Company did not recognize significant revenue associated with the final settlement of contract value for any projects that were completed in prior periods. In accordance with industry practice, accounts receivable includes retentions receivable, a portion of which may not be received within one year. At June 30, 2021 and December 31, 2020, retentions receivable were $112 and $122, respectively, while the portions that may not be received within one year were $20 and $26, respectively. There were no other significant changes due to business acquisitions or significant changes in estimates of contract progress or transaction price. There were no significant impairments of contract assets recognized during the period.
Costs to Obtain or Fulfill a Contract
The Company generally does not incur significant incremental costs related to obtaining or fulfilling a contract prior to the start of a project. The Company may incur certain fulfilment costs such as initial design or mobilization costs which are capitalized if: (i) they relate directly to the contract; (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract; and (iii) are expected to be recovered through revenues generated under the contract. Such costs, which are amortized over the life of the respective project, were not material for any period presented.
NOTE 6. GOODWILL AND INTANGIBLES
Goodwill
The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2021 are as follows:
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Total
Goodwill
|
|
Goodwill as of December 31, 2020
|
|
$
|
906
|
|
|
$
|
172
|
|
|
$
|
4
|
|
|
$
|
1,082
|
|
Acquisitions
|
|
|
7
|
|
|
|
5
|
|
|
|
—
|
|
|
|
12
|
|
Measurement period adjustments and other (1)
|
|
|
(14
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(15
|
)
|
Goodwill as of June 30, 2021
|
|
$
|
899
|
|
|
$
|
176
|
|
|
$
|
4
|
|
|
$
|
1,079
|
|
|
(1)
|
Measurement period adjustments related to the purchase accounting for SKG and finalization of certain immaterial acquisitions in 2020 (see Note 4 – “Business Combinations”). Other includes fluctuations due to foreign currency translation.
|
As of June 30, 2021, the Company has recorded accumulated goodwill impairment charges of $193, including $83 in the Safety Services segment, $52 in the Specialty Services segment, and $58 in the Industrial Services segment.
During 2020, while the Company’s services were largely deemed essential under various governmental orders, the Company did experience negative impacts from COVID-19 on its operations including impacts from the Company’s suppliers, other vendors, and customer base. In addition to the impacts of COVID-19, the Company was also impacted by a significant decline in demand and volatility in oil prices as some of the Company’s services involve work within the energy industry. As a result of these factors and the significant decline in the Company’s market capitalization during the first quarter 2020, the Company concluded an impairment triggering event had occurred for all of its reporting units and performed impairment tests for its goodwill and recoverability tests for its long-lived assets, which primarily include finite-lived intangible assets, property and equipment and right of use lease assets. During the first quarter of 2020, based on preliminary carrying values from the October 1, 2019 acquisition of APi Group, Inc. (“APi Acquisition”), the Company determined goodwill was impaired as the preliminary carrying values of some reporting units exceeded fair values. The Company recorded an impairment charge to goodwill of $203 based on preliminary carrying values. During the third quarter of 2020 when purchase accounting was finalized, the impairment charge was finalized at $197.
14
Intangibles
The Company’s identifiable intangible assets are comprised of the following as of June 30, 2021 and December 31, 2020:
|
|
June 30, 2021
|
|
|
|
Weighted Average
Remaining Useful Lives
(in Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Amortized intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual backlog
|
|
|
1.3
|
|
|
$
|
100
|
|
|
$
|
(95
|
)
|
|
$
|
5
|
|
Customer relationships
|
|
|
6.6
|
|
|
|
833
|
|
|
|
(170
|
)
|
|
|
663
|
|
Trade names
|
|
|
13.5
|
|
|
|
275
|
|
|
|
(31
|
)
|
|
|
244
|
|
Total
|
|
|
|
|
|
$
|
1,208
|
|
|
$
|
(296
|
)
|
|
$
|
912
|
|
|
|
December 31, 2020
|
|
|
|
Weighted Average
Remaining Useful Lives
(in Years)
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
|
|
Amortized intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual backlog
|
|
|
1.6
|
|
|
$
|
101
|
|
|
$
|
(92
|
)
|
|
$
|
9
|
|
Customer relationships
|
|
|
7.0
|
|
|
|
823
|
|
|
|
(119
|
)
|
|
|
704
|
|
Trade names
|
|
|
13.8
|
|
|
|
274
|
|
|
|
(22
|
)
|
|
|
252
|
|
Total
|
|
|
|
|
|
$
|
1,198
|
|
|
$
|
(233
|
)
|
|
$
|
965
|
|
Amortization expense recognized on identifiable intangible assets are as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
|
2020
|
|
|
2021
|
|
|
|
2020
|
|
Cost of revenues
|
|
$
|
2
|
|
|
|
$
|
23
|
|
|
$
|
3
|
|
|
|
$
|
45
|
|
Selling, general, and administrative expense
|
|
|
30
|
|
|
|
|
28
|
|
|
|
60
|
|
|
|
|
58
|
|
Total intangible asset amortization expense
|
|
$
|
32
|
|
|
|
$
|
51
|
|
|
$
|
63
|
|
|
|
$
|
103
|
|
During the first quarter 2020, the Company concluded an impairment triggering event had occurred. The Company reviewed its long-lived assets for impairment and recorded a $5 preliminary impairment charge related to the intangible assets that were part of a business classified as held for sale. The impairment was based on preliminary carrying values from the APi Acquisition which were later finalized in the third quarter of 2020, and as a result the final impairment charge related to intangible assets was adjusted to $0.
During the year ended December 31, 2020, the Company finalized the fair value of goodwill and intangible assets related to the APi Acquisition. The measurement period adjustments recorded during the year ended December 31, 2020 resulted in a cumulative reversal to amortization expense that had been recorded earlier in the year. If the final intangible assets fair values had been known at the date of the APi Acquisition, amortization expense would have decreased by $5 and $10 for the three and six months ended June 30, 2020, to $46 and $93, respectively.
NOTE 7. FAIR VALUE OF FINANCIAL INSTRUMENTS
U.S. GAAP defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:
|
Level 1:
|
Observable inputs such as quoted prices for identical assets or liabilities in active markets.
|
15
|
Level 2:
|
Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
|
|
Level 3:
|
Unobservable inputs that reflect the reporting entity’s own assumptions.
|
Recurring Fair Value Measurements
The Company’s financial assets and liabilities (adjusted to fair value at least quarterly) are derivative instruments which are primarily included in other noncurrent liabilities and contingent consideration which is primarily included in contingent consideration and compensation liabilities in the unaudited condensed consolidated balance sheets.
The following tables summarize the fair values and levels within the fair value hierarchy in which the measurements fall for assets and liabilities measured on a recurring basis as of June 30, 2021 and December 31, 2020:
|
|
Fair Value Measurements at June 30, 2021
|
|
Assets (Liabilities)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivatives designated as effective hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
(24
|
)
|
|
$
|
—
|
|
|
$
|
(24
|
)
|
Cross currency swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net investment hedges
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Contingent consideration obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
$
|
—
|
|
|
$
|
(23
|
)
|
|
$
|
(1
|
)
|
|
$
|
(24
|
)
|
|
|
Fair Value Measurements at December 31, 2020
|
|
Assets (Liabilities)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Derivatives designated as effective hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
—
|
|
|
$
|
(35
|
)
|
|
$
|
—
|
|
|
$
|
(35
|
)
|
Derivatives not designated as effective hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
(9
|
)
|
Contingent consideration obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
$
|
—
|
|
|
$
|
(44
|
)
|
|
$
|
(7
|
)
|
|
$
|
(51
|
)
|
The Company determines the fair value of its interest rate swaps (“Derivatives”) using standard pricing models and market-based assumptions for all inputs such as yield curves and quoted spot and forward exchange rates. Accordingly, the Company’s derivative instruments are classified as Level 2.
The value of the contingent consideration obligations is determined using a probability-weighted discounted cash flow method. This fair value measurement is based on unobservable inputs in the market and thus represents a Level 3 measurement within the fair value hierarchy. This analysis reflects the contractual terms of the purchase agreements (e.g., potential payment amounts, length of measurement periods, manner of calculating any amounts due) and utilizes assumptions with regard to future cash flows, probabilities of achieving such future cash flows, and a discount rate. Depending on the contractual terms of the purchase agreement, the probability of achieving future cash flows or earnings generally represent the only significant unobservable inputs. The contingent consideration obligations are measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings.
16
The table below presents a reconciliation of the fair value of the Company’s contingent consideration obligations that use unobservable inputs (Level 3), as well as other information about the contingent consideration obligations:
|
|
Six Months Ended
June 30, 2021
|
|
Balance as of December 31, 2020
|
|
$
|
7
|
|
Issuances
|
|
|
—
|
|
Settlements
|
|
|
(6
|
)
|
Adjustments to fair value
|
|
|
—
|
|
Balance as of June 30, 2021
|
|
$
|
1
|
|
Number of open contingent consideration arrangements at the end of period
|
|
|
2
|
|
Maximum potential payout at end of period
|
|
$
|
2
|
|
At June 30, 2021, the remaining open contingent consideration arrangements are set to expire at various dates through 2024. Level 3 unobservable inputs were used to calculate the fair value adjustments shown in the table above. The fair value adjustments and the related unobservable inputs were not considered significant for the three and six months ended June 30, 2021.
Fair Value Estimates
The following table presents the carrying amount and fair value of the Company’s non-variable interest rate debt (“Senior Notes,” as defined in Note 10 – “Debt”), including current portion and excluding unamortized debt issuance costs, which is estimated by discounting future cash flows at currently available rates for borrowing arrangements with similar terms and conditions, which are considered to be Level 2 inputs under the fair value hierarchy. The carrying values of variable interest rate long-term debt, including current portions, approximate their fair values because of the variable interest rates of these instruments, which generally are reset monthly.
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
Senior Notes
|
|
$
|
350
|
|
|
$
|
348
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE 8. DERIVATIVES
From time to time, the Company enters into derivative transactions to hedge its exposures to interest rate and foreign currency rate fluctuations. The Company does not enter into derivative transactions for trading purposes.
Interest Rate Swaps
The Company manages its fixed and floating rate debt mix using interest rate swaps. Interest rate swap contracts are used by the Company to separate interest rate risk management from the debt funding decision. The cash paid and received from the settlement of interest rate swaps is included in interest expense in the unaudited condensed consolidated statement of operations.
At June 30, 2021, the Company had a $720 notional amount interest rate swap that fixes the London Interbank Offering Rate (“LIBOR”) at 1.62%. This interest rate swap is designated as a cash flow hedge of the interest rate risk attributable to the Company’s forecasted variable interest payments and has a maturity date of October 2024.
The fair value of the interest rate swap designated as an effective hedge was a liability of $24 as of June 30, 2021 and a liability of $35 as of December 31, 2020. The decrease in the liability was primarily driven by changes in the applicable forward yield curves related to the LIBOR. The Company is not party to any derivatives that require collateral to be posted prior to settlement.
Foreign Currency Contracts
The Company used foreign currency contracts, primarily forward foreign currency contracts, to mitigate the foreign currency exposure of certain other foreign currency transactions. At June 30, 2021, the Company had no foreign currency contracts outstanding that are not designated as effective hedges for accounting purposes. Fair market value gains or losses on foreign currency contracts not designated as hedges were included in the results of operations and are classified in other (income) expense, net in the unaudited condensed consolidated statement of operations.
17
The Company recognized income of $0 and $1 in other (income) expense, net, during the three and six months ended June 30, 2021, respectively, and $0 during the three and six months ended June 30, 2020 related to derivatives that are not designated as hedging instruments.
As of December 31, 2020, foreign currency contracts carried a liability balance of $9 and an asset balance of less than $1.
Cash Flow Hedging
Currency exchange contracts utilized to maintain the functional currency value of expected financial transactions denominated in foreign currencies are designated as cash flow hedges. Gains and losses related to changes in the market value of these contracts are reported as a component of accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity in the unaudited condensed consolidated balance sheets and reclassified to earnings in the same line item in the unaudited condensed consolidated statements of operations and in the same period as the recognition of the underlying hedged transaction. The Company periodically assesses whether its currency exchange contracts are effective, and when a contract is determined to be no longer effective as a hedge, the Company discontinues hedge accounting prospectively.
During the first quarter of 2021, the Company entered into cross-currency swaps with gross notional U.S. dollar equivalent amount of $120. The fair value of the cross-currency swaps was a liability of less than $1 as of June 30, 2021.
Net Investment Hedge
The Company has net investments in foreign subsidiaries subject to changes in foreign currency exchange rates. During the first quarter 2021, the Company entered into a $230 notional cross currency swap designated as a net investment hedge for a portion of the Company’s net investments in Euro-denominated subsidiaries. Gains and losses resulting from a change in fair value of the net investment hedge are offset by gains and losses on the underlying foreign currency exposure and included in AOCI in the unaudited condensed consolidated balance sheets. The fair value of the net investment hedge was an asset of $1 as of June 30, 2021.
NOTE 9. PROPERTY AND EQUIPMENT, NET
The components of property and equipment as of June 30, 2021 and December 31, 2020 are as follows:
|
|
Estimated
Useful Lives
(In Years)
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Land
|
|
N/A
|
|
$
|
27
|
|
|
$
|
26
|
|
Building
|
|
39
|
|
|
81
|
|
|
|
76
|
|
Machinery and equipment
|
|
2-20
|
|
|
231
|
|
|
|
217
|
|
Autos and trucks
|
|
5-10
|
|
|
99
|
|
|
|
92
|
|
Office equipment
|
|
3-7
|
|
|
24
|
|
|
|
24
|
|
Leasehold improvements
|
|
1-15
|
|
|
15
|
|
|
|
14
|
|
Total cost
|
|
|
|
|
477
|
|
|
|
449
|
|
Accumulated depreciation
|
|
|
|
|
(129
|
)
|
|
|
(94
|
)
|
Property and equipment, net
|
|
|
|
$
|
348
|
|
|
$
|
355
|
|
Depreciation expense related to property and equipment, including finance leases, was $20 and $23 during the three months ended June 30, 2021 and 2020, respectively, and $39 and $41 during the six months ended June 30, 2021 and 2020, respectively. Depreciation expense is included within cost of revenues and selling, general and administrative expenses in the unaudited condensed consolidated statements of operations.
During the second quarter of 2020, the Company finalized the fair values of property and equipment acquired in the APi Acquisition. These measurement period adjustments resulted in a cumulative adjustment to depreciation expense. If the property and equipment fair values had been known at the date of the APi Acquisition, depreciation expense would have increased by $2 to $43 for the six months ended June 30, 2020.
18
NOTE 10. DEBT
Debt obligations consist of the following:
|
|
Maturity Date
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Term Loan Facility
|
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facility
|
|
October 1, 2024
|
|
$
|
—
|
|
|
$
|
—
|
|
2019 Term Loan
|
|
October 1, 2026
|
|
|
1,140
|
|
|
|
1,188
|
|
2020 Term Loan
|
|
October 1, 2026
|
|
|
—
|
|
|
|
250
|
|
Senior Notes
|
|
July 15, 2029
|
|
|
350
|
|
|
|
—
|
|
Other Obligations
|
|
|
|
|
2
|
|
|
|
5
|
|
Total debt obligations
|
|
|
|
|
1,492
|
|
|
|
1,443
|
|
Less: unamortized deferred financing costs
|
|
|
|
|
(22
|
)
|
|
|
(28
|
)
|
Total debt, net of deferred financing costs
|
|
|
|
|
1,470
|
|
|
|
1,415
|
|
Less: short-term and current portion of long-term debt
|
|
|
|
|
(13
|
)
|
|
|
(18
|
)
|
Long-term debt
|
|
|
|
$
|
1,457
|
|
|
$
|
1,397
|
|
During the second quarter of 2021, APi Group DE, Inc, a wholly-owned subsidiary, completed a private offering of $350 aggregate principal amount of 4.125% Senior Notes (“Senior Notes”) issued under an indenture dated June 22, 2021 (the “Indenture”). The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and certain of the Company’s existing and future domestic subsidiaries. The Company used the net proceeds from the sale of the Senior Notes to repay the $250 million 2020 Term Loan, prepay a portion of the 2019 Term Loan and fund general corporate purposes. In connection with the repayment of the 2020 Term Loan and prepayment on the 2019 Term Loan, the Company incurred a loss on debt extinguishment of $9 related to unamortized debt issuance costs, which was recorded within loss on debt extinguishment in the unaudited condensed consolidated statements of operations.
The Senior Notes contain customary terms and provisions (including representations, covenants, and conditions). Certain covenants, among other things, restrict the Company's and its subsidiaries' ability to incur indebtedness, grant liens, make investments and sell assets. The Senior Notes also contain customary events of default, covenants, and representations and warranties. Financial covenants include: a senior secured leverage ratio no greater than 3.5 to 1.0, a total net leverage ratio of 3.0 to 1.0, and a fixed charge coverage ratio of 2.0 to 1.0.
As of June 30, 2021, there was $1,140 of principal outstanding under the 2019 Term Loan. As of June 30, 2021, the Company had a 5-year interest rate swap with respect to $720 of notional value of the 2019 Term Loan, exchanging one-month LIBOR for a fixed rate of 1.62% per annum. Accordingly, the Company’s fixed interest rate per annum on the swapped $720 notional value of the 2019 Term Loan is 4.12% through its maturity. The remaining $420 of the 2019 Term Loan balance is bearing interest at 2.59% per annum based on one-month LIBOR plus 250 basis points. In addition, during the first quarter 2021, the Company entered into a cross currency interest rate swap with a notional value of $230. The swap reduces the Company’s interest expense by approximately $3 annually and reduces its overall effective interest rate by approximately 20 basis points.
The interest rate applicable to borrowings under the $300 five-year senior secured revolving credit facility (the “Revolving Credit Facility”) is, at the Company’s option, either (1) a base rate plus an applicable margin equal to 1.25%, or (2) a Eurocurrency rate (adjusted for statutory reserves) plus an applicable margin equal to 2.25%.
At June 30, 2021 and December 31, 2020, the Company had no amounts outstanding under the Revolving Credit Facility, and $227 and $230 was available at June 30, 2021 and December 31, 2020, respectively, after giving effect to $73 and $70 of outstanding letters of credit.
As of June 30, 2021 and December 31, 2020, the Company was in compliance with all applicable debt covenants.
As of June 30, 2021 and December 31, 2020, the Company had $2 and $5 in notes outstanding, respectively, for the acquisition of equipment and vehicles.
Note 11. Income Taxes
The Company’s quarterly income tax provision is measured using an estimate of its consolidated annual effective tax rate, adjusted in the current period for discrete income tax items, within the periods presented. The comparison of the Company’s income tax provision between periods may be impacted by the level and mix of earnings and losses by tax jurisdiction, foreign income tax rate differentials and discrete items. The Company’s effective tax rate was 28.9% and (49.0)% for the three months ended June 30, 2021 and 2020, respectively, and 17.0% and 28.5% for the six months ended June 30, 2021 and 2020, respectively. The difference between the effective tax rate and the statutory U.S. federal income tax rate of 21.0% for the six months ended June 30, 2021 is due to nondeductible permanent items, state taxes, and taxes on foreign earnings in jurisdictions that have higher tax rates.
19
As of June 30, 2021, the Company’s deferred tax assets included a valuation allowance of $4 primarily related to certain deferred tax assets of the Company’s foreign subsidiaries and a capital loss carryforward in the U.S. The factors used to assess the likelihood of realization were the past performance of the related entities, forecasts of future taxable income, future reversals of existing taxable temporary differences, and available tax planning strategies that could be implemented to realize the deferred tax assets. The ability or failure to achieve the forecasted taxable income in these entities could affect the ultimate realization of deferred tax assets.
As of June 30, 2021, the Company had gross federal, state and foreign net operating loss carryforwards of approximately $0, $15 and $9, respectively. The state net operating losses have carryforward periods of five to twenty years and begin to expire in 2024. The foreign net operating losses generally have carryback periods of three years, carryforward periods of twenty years, or are indefinite and begin to expire in 2034.
The Company’s liability for unrecognized tax benefits is recorded within other noncurrent liabilities in the unaudited condensed consolidated balance sheets and recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes in the income statement. As of June 30, 2021 and December 31, 2020, the total gross unrecognized tax benefits were $3 and $2, respectively. The Company had accrued gross interest and penalties as of June 30, 2021 and December 31, 2020 of $1 and $1, respectively. During the three and six months ended June 30, 2021 and 2020, the Company recognized net interest expense of $0 for all periods.
If all of the Company’s unrecognized tax benefits as of June 30, 2021 were recognized, $2 would impact the Company’s effective tax rate. The Company expects $1 of unrecognized tax benefits to expire in the next twelve months due to lapses in the statute of limitations.
As of June 30, 2021, with few immaterial exceptions, neither the Company nor its subsidiaries are subject to examination prior to tax year 2014. The U.S. federal jurisdiction exam for the period ended December 31, 2017 is expected to close in the third quarter and is not expected to have a material impact on the consolidated financial statements. There are various other audits in state and foreign jurisdictions. No adjustments have been proposed and the Company does not expect the results of the audits to have a material impact on the consolidated financial statements.
On December 27, 2020, the Consolidated Appropriations Act was signed into law, which included a temporary provision that allows for a 100 percent deduction for business meals expenses purchased from a restaurant between December 31, 2020, and January 1, 2023. The tax law changes in the Consolidated Appropriations Act did not have a material impact on the Company’s quarterly income tax provision.
Note 12. Employee Benefit Plans
Certain Company subsidiaries, including certain subsidiaries in Canada, contribute amounts to multiemployer pension plans and other multiemployer benefit plans and trusts, which are recorded as a component of employee wages and salaries within costs of revenue. Contributions are generally based on fixed amounts per hour per employee for employees covered under these plans. Multiemployer plan contribution rates are determined annually and assessed on a pay-as-you-go basis based on union employee payrolls. Union payrolls cannot be determined for future periods because the number of union employees employed at a given time, and the plans in which they participate, vary depending upon the location and number of ongoing projects and the need for union resources in connection with those projects. Total consolidated contributions to multiemployer plans were $24 and $19 during the three months ended June 30, 2021 and 2020, respectively and $43 and $40 during the six months ended June 30, 2021 and 2020, respectively.
The Company also has a trustee-administered profit sharing retirement plan covering substantially all employees not covered by collective bargaining agreements and also adopted a profit sharing plan for employees in Canada (collectively, “Profit Sharing Plans”). The Profit Sharing Plans provide for annual discretionary contributions in amounts based on a performance grid as determined by the Company’s directors. The Company recognized $4 and $3 in expense during the three months ended June 30, 2021 and 2020, respectively and $7 and $6 in expense during the six months ended June 30, 2021 and 2020, respectively, in connection with these plans.
Effective January 1, 2021, most of the Company’s employees in the U.S and Canada, including named executive officers, are eligible to participate in the Company’s Employee Stock Purchase Plan (the “ESPP”). Sales of shares of the Company’s common stock under the ESPP are generally made pursuant to offerings that are intended to satisfy the requirements of Section 423 of the Internal Revenue Code. The ESPP permits employees of the Company to purchase common stock at a price equal to 85% of the lesser of (i) the market value of the common stock on the first day of the offering period, or (ii) the market value of the common stock on the purchase date, whichever is lower. Participants are subject to eligibility requirements and may not purchase more than 500 shares in any offering period or more than $10,000 of common stock in a year under the ESPP. During the three and six months ended June 30, 2021, the Company has recognized $1 and $2 of expense, respectively, related to the ESPP.
20
Note 13. Related-Party Transactions
An annual dividend for Preferred Shares was declared as of December 31, 2020 and settled in shares during January 2021. The Company issued 12.4 million shares to Mariposa Acquisition IV, LLC, a related entity that is controlled by the co-chairperson of the Company’s Board of Directors. In addition, the Company incurred advisory fees of $1 during both the three months ended June 30, 2021 and 2020, respectively, and $2 during both the six months ended June 30, 2021 and 2020, payable to Mariposa Capital, LLC, an entity owned by the co-chairperson of the Company’s Board of Directors.
From time to time the Company also enters into other immaterial related party transactions.
Note 14. Earnings (Loss) Per Share
Net income is allocated between the Company’s common shares and other participating securities based on their participation rights. The Preferred Shares represent participating securities. Earnings attributable to Preferred Shares are not included in earnings attributable to common shares in calculating earnings per common share (the two-class method). For periods of net loss, there is no impact from the two-class method on earnings (loss) per share (“EPS”) as net loss is allocated to common shares because Preferred Shares are not contractually obligated to share the loss.
21
The following table sets forth the computation of earnings (loss) per common share using the two-class method. The dilutive effect of outstanding Preferred Shares and the Preferred Share dividend is reflected in diluted EPS using the if-converted method, and warrants, options, and restricted and performance shares are reflected using the treasury stock method. For periods of net loss, basic and diluted EPS are the same, as the assumed exercise of Preferred Shares, restricted and performance shares, warrants and stock options are anti-dilutive (amounts in millions, except share and per share amounts):
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Basic earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
21
|
|
|
$
|
36
|
|
|
$
|
13
|
|
|
$
|
(158
|
)
|
Less income attributable to Preferred Shares
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
Net income (loss) attributable to common shareholders - basic
|
|
$
|
18
|
|
|
$
|
30
|
|
|
$
|
11
|
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
201,281,939
|
|
|
|
169,294,244
|
|
|
|
196,782,691
|
|
|
|
169,558,163
|
|
Basic earnings (loss) per common share
|
|
$
|
0.09
|
|
|
$
|
0.18
|
|
|
$
|
0.06
|
|
|
$
|
(0.93
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
21
|
|
|
$
|
36
|
|
|
$
|
13
|
|
|
$
|
(158
|
)
|
Less income attributable to Preferred Shares
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
—
|
|
Net income (loss) attributable to common shareholders - diluted
|
|
$
|
18
|
|
|
$
|
30
|
|
|
$
|
11
|
|
|
$
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
201,281,939
|
|
|
|
169,294,244
|
|
|
|
196,782,691
|
|
|
|
169,558,163
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs, warrants and stock options (1)
|
|
|
660,735
|
|
|
|
483,162
|
|
|
|
2,302,651
|
|
|
|
—
|
|
Shares issuable pursuant to the annual Preferred Share dividend (2)
|
|
|
4,435,765
|
|
|
|
6,481,822
|
|
|
|
3,409,844
|
|
|
|
—
|
|
Weighted average shares outstanding - diluted
|
|
|
206,378,439
|
|
|
|
176,259,228
|
|
|
|
202,495,186
|
|
|
|
169,558,163
|
|
Diluted earnings (loss) per common share
|
|
$
|
0.09
|
|
|
$
|
0.17
|
|
|
$
|
0.06
|
|
|
$
|
(0.93
|
)
|
|
(1)
|
For all periods presented, 4,000,000 Preferred Shares, which are convertible to the same number of common shares, have been excluded from the calculation of diluted shares, as their inclusion would be anti-dilutive. For the three months ended June 30, 2020, 162,500 stock options to purchase the same number of common shares and 21,515,359 common shares that would be issuable upon exercise of 64,546,077 warrants exercisable to purchase common shares on a 3:1 basis (21,515,359 ordinary share equivalents) for which the exercise price exceeded the average market price, have been excluded from the calculation of diluted shares, as their inclusion would be anti-dilutive.
|
|
(2)
|
For the three and six months ended June 30, 2021, and the three months ended June 30, 2020, dilutive securities include common share equivalents which represent the annual dividend, payable in common shares, that Preferred Shares would be entitled to receive assuming that the volume weighted average price of the Company’s common shares for the last ten trading days of the period would be the same average price during the last ten trading days of the calendar year. The annual dividend amount is equal to 20% of the increase in the volume-weighted average market price per share of the Company’s common shares for the last ten trading days of the calendar year, multiplied by 141,194,638 shares (the “Annual Dividend Amount”). During 2020, the Annual Dividend Amount was calculated based on the Company’s share price appreciation over the initial offering price of $10.00. During 2021, the Annual Dividend Amount was calculated based on the Company’s share price appreciation over the highest price previously used in calculating the Annual Dividend Amount of $17.8829.
|
Note 15. Segment Information
The Company manages its operations under three operating segments which represent the Company’s three reportable segments: Safety Services, Specialty Services, and Industrial Services. This structure is generally focused on various businesses related to contracting services and maintenance of industrial and commercial facilities. All three reportable segments derive their revenue from installation, inspection, maintenance, service and repair, retrofitting and upgrading, engineering and design, distribution, fabrication, and various types of other services primarily in the United States as well as Canada and Europe.
The Safety Services segment focusing on end-to-end integrated occupancy systems (fire protection solutions, HVAC and entry systems), including design, installation, inspection and service of these integrated systems. The work performed within this segment spans across industries and facilities and includes commercial, education, healthcare, high tech, industrial and special-hazard settings.
22
The Specialty Services segment provides a variety of infrastructure services and specialized industrial plant services, which includes maintenance and repair of critical infrastructure such as underground electric, gas, water, sewer and telecommunications infrastructure. This segment’s services include engineering and design, fabrication, installation, maintenance service and repair, and retrofitting and upgrading. Customers within this segment vary from private and public utilities, communications, healthcare, education, transportation, manufacturing, industrial plants and governmental agencies throughout the United States.
The Industrial Services segment provides a variety of services to the energy industry focused on transmission and distribution. This segment’s services include pipeline infrastructure, access and road construction, supporting facilities, and performing ongoing integrity management and maintenance
The accounting policies of the reportable segments are the same as those described in Note 2 – “Basis of Presentation and Significant Accounting Policies.” All intercompany transactions and balances are eliminated in consolidation. Intercompany revenues and costs between entities within a reportable segment are eliminated to arrive at segment totals and eliminations between segments are separately presented. Corporate results include amounts related to corporate functions such as administrative costs, professional fees, acquisition-related transaction costs (exclusive of acquisition integration costs, which are included within the segment results of the acquired businesses), and other discrete items.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) is the measure of profitability used by management to manage its segments and, accordingly, in its segment reporting. As appropriate, the Company supplements the reporting of consolidated financial information determined in accordance with U.S. GAAP with certain non-U.S. GAAP financial measures, including EBITDA. The Company believes these non-U.S. GAAP measures provide meaningful information and help investors understand the Company’s financial results and assess its prospects for future performance. The Company uses EBITDA to evaluate its performance, both internally and as compared with its peers, because it excludes certain items that may not be indicative of the Company’s core operating results for its reportable segments. Segment EBITDA is calculated in a manner consistent with consolidated EBITDA.
Summarized financial information for the Company’s reportable segments is presented and reconciled to consolidated financial information in the following tables, including a reconciliation of consolidated operating income to EBITDA. The tables below may contain slight summation differences due to rounding:
|
|
Three Months Ended June 30, 2021
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
Net revenues
|
|
$
|
512
|
|
|
$
|
415
|
|
|
$
|
68
|
|
|
$
|
(17
|
)
|
|
$
|
978
|
|
EBITDA Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
52
|
|
|
$
|
32
|
|
|
$
|
(8
|
)
|
|
$
|
(29
|
)
|
|
$
|
47
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other, net
|
|
|
2
|
|
|
|
1
|
|
|
|
2
|
|
|
|
1
|
|
|
|
6
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Depreciation
|
|
|
1
|
|
|
|
10
|
|
|
|
7
|
|
|
|
2
|
|
|
|
20
|
|
Amortization
|
|
|
18
|
|
|
|
12
|
|
|
|
2
|
|
|
|
—
|
|
|
|
32
|
|
EBITDA
|
|
$
|
73
|
|
|
$
|
55
|
|
|
$
|
3
|
|
|
$
|
(35
|
)
|
|
$
|
96
|
|
Total assets
|
|
$
|
2,141
|
|
|
$
|
1,023
|
|
|
$
|
262
|
|
|
$
|
817
|
|
|
$
|
4,243
|
|
Capital expenditures
|
|
|
1
|
|
|
|
10
|
|
|
|
5
|
|
|
|
—
|
|
|
|
16
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
Net revenues
|
|
$
|
371
|
|
|
$
|
349
|
|
|
$
|
173
|
|
|
$
|
(4
|
)
|
|
$
|
889
|
|
EBITDA Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
22
|
|
|
$
|
22
|
|
|
$
|
4
|
|
|
$
|
(21
|
)
|
|
$
|
27
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other, net
|
|
|
4
|
|
|
|
6
|
|
|
|
—
|
|
|
|
1
|
|
|
|
11
|
|
Depreciation
|
|
|
(1
|
)
|
|
|
16
|
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
23
|
|
Amortization
|
|
|
24
|
|
|
|
18
|
|
|
|
8
|
|
|
|
1
|
|
|
|
51
|
|
EBITDA
|
|
$
|
49
|
|
|
$
|
62
|
|
|
$
|
21
|
|
|
$
|
(20
|
)
|
|
$
|
112
|
|
Total assets
|
|
$
|
1,655
|
|
|
$
|
1,155
|
|
|
$
|
441
|
|
|
$
|
519
|
|
|
$
|
3,770
|
|
Capital expenditures
|
|
|
—
|
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
|
|
6
|
|
23
|
|
Six Months Ended June 30, 2021
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
Net revenues
|
|
$
|
978
|
|
|
$
|
736
|
|
|
$
|
93
|
|
|
$
|
(26
|
)
|
|
$
|
1,781
|
|
EBITDA Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
97
|
|
|
$
|
29
|
|
|
$
|
(23
|
)
|
|
$
|
(58
|
)
|
|
$
|
45
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other, net
|
|
|
5
|
|
|
|
2
|
|
|
|
2
|
|
|
|
—
|
|
|
|
9
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Depreciation
|
|
|
3
|
|
|
|
21
|
|
|
|
12
|
|
|
|
3
|
|
|
|
39
|
|
Amortization
|
|
|
33
|
|
|
|
23
|
|
|
|
6
|
|
|
|
1
|
|
|
|
63
|
|
EBITDA
|
|
$
|
138
|
|
|
$
|
75
|
|
|
$
|
(3
|
)
|
|
$
|
(63
|
)
|
|
$
|
147
|
|
Total assets
|
|
$
|
2,141
|
|
|
$
|
1,023
|
|
|
$
|
262
|
|
|
$
|
817
|
|
|
$
|
4,243
|
|
Capital expenditures
|
|
|
2
|
|
|
|
21
|
|
|
|
11
|
|
|
|
—
|
|
|
|
34
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
Safety
Services
|
|
|
Specialty
Services
|
|
|
Industrial
Services
|
|
|
Corporate and
Eliminations
|
|
|
Consolidated
|
|
Net revenues
|
|
$
|
795
|
|
|
$
|
649
|
|
|
$
|
310
|
|
|
$
|
(7
|
)
|
|
$
|
1,747
|
|
EBITDA Reconciliation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
12
|
|
|
$
|
(114
|
)
|
|
$
|
(54
|
)
|
|
$
|
(51
|
)
|
|
$
|
(207
|
)
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and other, net
|
|
|
5
|
|
|
|
8
|
|
|
|
—
|
|
|
|
1
|
|
|
|
14
|
|
Depreciation
|
|
|
2
|
|
|
|
24
|
|
|
|
13
|
|
|
|
2
|
|
|
|
41
|
|
Amortization
|
|
|
48
|
|
|
|
36
|
|
|
|
17
|
|
|
|
2
|
|
|
|
103
|
|
EBITDA
|
|
$
|
67
|
|
|
$
|
(46
|
)
|
|
$
|
(24
|
)
|
|
$
|
(46
|
)
|
|
$
|
(49
|
)
|
Total assets
|
|
$
|
1,655
|
|
|
$
|
1,155
|
|
|
$
|
441
|
|
|
$
|
519
|
|
|
$
|
3,770
|
|
Capital expenditures
|
|
|
1
|
|
|
|
9
|
|
|
|
6
|
|
|
|
1
|
|
|
|
17
|
|
Note 16. SUBSEQUENT EVENTS
During July 2021, the Company completed an acquisition within the Safety Services segment for a purchase price of $34, primarily made up of cash paid at closing, and also closed several other individually immaterial acquisitions.
On July 27, 2021, the Company announced it has entered into a definitive agreement to acquire the Chubb Limited (“Chubb”) fire and security business from Carrier Global Corporation for an enterprise value of $3,100, which is comprised of $2,900 cash and approximately $200 of assumed liabilities, and other adjustments. The transaction is expected to be funded through a combination of cash on hand, perpetual preferred equity financing, and debt, and is expected to close around year-end 2021.
24
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains “forward-looking statements”. These forward-looking statements are based on beliefs and assumptions as of the date such statements are made and are subject to risks and uncertainties. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms including “expect”, “anticipate”, “project”, “will”, “should”, “believe”, “intend”, “plan”, “estimate”, “potential”, “target”, “would”, and similar expressions, although not all forward-looking statements contain these identifying terms.
These forward-looking statements are based on our current expectations and assumptions and on information currently available to management and include, among others, statements regarding, as of the date such statements are made:
|
•
|
our expectations regarding the impact of the COVID-19 pandemic on our business, including the seasonal and cyclical volatility of our business, and future financial results;
|
|
•
|
our beliefs regarding the recurring and repeat nature of our business and its impact on our cash flows and organic growth opportunities;
|
|
•
|
our expectations regarding industry trends and their impact on our business, and our ability to capitalize on the opportunities presented in the markets we serve;
|
|
•
|
our intent to continue to grow our business, both organically and through acquisitions, and our beliefs regarding the impact of our business strategies on our growth;
|
|
•
|
our beliefs regarding our customer relationships;
|
|
•
|
our beliefs regarding market risk and our ability to mitigate that risk;
|
|
•
|
our expectations and beliefs regarding accounting and tax matters;
|
|
•
|
our expectations regarding future capital expenditures;
|
|
•
|
our expectations regarding the pending acquisition of the Chubb fire and security business, including the timing for closing and the sources of financing for the consideration; and
|
|
•
|
our beliefs regarding the sufficiency of our current sources of liquidity to fund our future liquidity requirements, our expectations regarding the types of future liquidity requirements and our expectations regarding the availability of future sources of liquidity.
|
These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this quarterly report and in our Annual Report on Form 10-K, filed on March 24, 2021, including those described under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in such Form 10-K, and other filings we make with the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this quarterly report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Important factors that may materially affect the forward-looking statements include the following:
|
•
|
the impact of the COVID-19 pandemic on our business, markets, supply chain, customers and workforce, on the credit and financial markets, and on the global economy generally;
|
|
•
|
adverse developments in the credit markets that could adversely affect funding of construction projects;
|
|
•
|
the ability and willingness of customers to invest in infrastructure projects;
|
|
•
|
a decline in demand for our services or for the products and services of our customers;
|
|
•
|
the fact our revenues are derived primarily from contracts with durations of less than six months and the risk that customers will not renew or enter into new contracts;
|
|
•
|
our ability to successfully acquire other businesses, successfully integrate acquired businesses into our operations and manage the risks and potential liabilities associated with those acquisitions;
|
|
•
|
the impact of our regional, decentralized business model on our ability to execute on our business strategies and operate our business successfully;
|
|
•
|
our ability to compete successfully in the industries and markets we serve;
|
|
•
|
our ability to properly manage and accurately estimate costs associated with specific customer projects, in particular for arrangements with fixed price terms;
|
25
|
•
|
increases in the cost, or reductions in the supply, of the materials we use in our business and for which we bear the risk of such increases;
|
|
•
|
our relationship with our employees, a large portion of which are covered by collective bargaining arrangements, and our ability to effectively manage and utilize our workforce;
|
|
•
|
the inherently dangerous nature of the services we provide and the risks of potential liability;
|
|
•
|
the impact of customer consolidation;
|
|
•
|
the loss of the services of key senior management personnel and the availability of skilled personnel;
|
|
•
|
the seasonality of our business and the impact of weather conditions;
|
|
•
|
the variability of our operating results between periods and the resulting difficulty in forecasting future operating results;
|
|
•
|
the impact of the COVID-19 pandemic on our accounting estimates and assumptions;
|
|
•
|
litigation that results from our business, including costs related to any damages we may be required to pay as a result of general liability or workmanship claims brought by our customers;
|
|
•
|
the impact of health, safety and environmental laws and regulations, and the costs associated with compliance with such laws and regulations;
|
|
•
|
our substantial level of indebtedness and the effect of restrictions on our operations set forth in the documents that govern such indebtedness;
|
|
•
|
our ability to successfully complete the pending acquisition of the Chubb fire and security business, including obtaining the necessary regulatory approvals and financing for the consideration; and
|
|
•
|
our compliance with certain financial maintenance covenants in our credit agreement and the effect on our liquidity of any failure to comply with such covenants.
|
The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause actual results to differ materially from those expressed in any forward-looking statement made by us. Other factors not discussed herein could also have a material adverse effect on us. You should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. These forward-looking statements speak only as of the date of this quarterly report. We assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future, except as required by applicable law.
All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this quarterly report and hereafter in our other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.
26